one difference between monopolistic competition and pure competition is that: This is a topic that many people are looking for. thetruthaboutdow.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, thetruthaboutdow.org would like to introduce to you Econ 1, Pure Competition vs. Pure Monopoly. Following along are instructions in the video below:
“At mcneil studios down here in nbeautiful baja tustin. We have professor mark mcneil talking talking about pure competition versus npure monopoly clapping sound obviously fake. Thank you thank you your applause for later here we are in beautiful baja tustin at the international film studios to talk about npure competition versus pure monopoly. What s the difference well this is an industry both the industries.
This is a purely ncompetitive industry. Many small firms. A homogeneous product and free entry and exit. And this is supply curve is the sum of the marginal cost curves for each firm in the industry.
This demand. Curve is the demand for nall consumers or buyers. In this industry and out of this market process comes nprice this price pc. We ll call it and this quantity qpc for pure competition.
And if we continue this up a little bit this entire area is the difference nbetween. The maximum this consumer is willing to pay and what they actually pay which is the market price maximum actual maximum actual and all these striped lines represent each of these buyer s consumer surplus and so this whole striped area represents the total of consumer surplus when the nquantity produced is that quality sorry a correction consumer surplus then all of this green striped area ngreen stripey area where is it represents producer surplus ka ching sound that s right the difference between what they receive and what their nopportunity costs are the supply curve shows you the opportunity costs so all of this is producer surplus and then down. Here is the opportunity cost of producing this quantity..
The opportunity cost is down here. Now what if i jp mcneil. A reference to jp morgan form a trust and i advertise the trust and ni say that i m gonna buy every firm in this nindustry. This was the trust movement in the late eighteen hundreds in the united nstates and that s why the antitrust laws were established.
Because people like jp would establish a trust and people would put their money ninto. Those trust funds and the trust fund got to be na big enough amount whatever they had specified it would be then jp or whoever was forming the trust would go buy every firm in that industry. I don t know if it was every single one. But certainly would buy the industry and then they would turn it into a monopoly and presumably from the nmonopoly profits then the investors would find it profitable to invest in this.
So. Let s nsay that i become jp morgan and i take this industry and turn it into a monopoly. So what will i do well. I now own every firm.
So this would be like a single firm every one of the firms is a different nproducer. But it s one organization one company so i don t care any longer. What is the demand i care about nmarginal revenue..
Because there s one seller. So the nmarginal revenue in this industry and remember i m going to charge. Everybody one price there will be no price discrimination. So that s the marginal revenue.
Curve nwhen. There s no price discrimination. And this supply curve is something like nthe sum of the marginal cost curves. It s close enough.
We can be more detailed in intermediate economics. So if this is the marginal cost and this is the marginal revenue. This will be the quality. I will choose nto produce that will be my monopoly quantity profit maximizing occurs where marginal revenue equals marginal cost and the price they will charge comes nfrom demand.
So this is the price. The monopoly will charge so you can see that first of all the nprice is higher. And the quantity produced is lower compared to price and quantity in pure competition..
Now what about this area here the difference between the maximum nthese consumers are willing to pay and what they actually pay then this is consumer surplus much smaller compared to pure competition yes and then the difference between nthese opportunity costs here. And what the seller receives. This is producer surplus opportunity ncost is this area here. But do you see this area right here this little triangle this triangle here is deadweight loss.
It is lost wealth because of some market nrestriction and i jp mcneil have cut back the quantity that would have been in a purely competitive environment. I nhave it cut back to to this quantity. The monopoly quantity for nthe purpose of being able to raise the price by cutting back on quantity. I am able to raise the price to the to the industry profit maximizing quantity and price combination and as a result.
I have decreased nconsumer surplus and increased producer surplus. So how do nmonopolies compare with purely competitive industries based non price. It s higher quantity is lower consumer surplus gets. Smaller with nmonopolies producer surplus gets larger with nmonopolies and is that their weight loss no deadweight loss in in pure competition.
But in pure monopoly. Yes. There is so there we have it the difference between pure competition and pure monopoly..
Now for your forbearance and patience. I nwill tell you a very slight story here. About economists. Economists are very forthright.
And what that means is that they are right a fourth of the time fakey laugh. Sound. I know i know ok ok just one more. Just one more.
If we were to line up all the economists in the world end to end. I they still wouldn t reach a conclusion more fakey laughter. I know i know thank you very much as the fake laughter continues. ” .
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